INSIGHTS

Does a commercial arbitration body have jurisdiction to settle disputes over non-disclosure and non-compete agreements?

June 26, 2019 Labor & Employment

Early in 2018, i.e. on February 19th, 2018, the Vietnam International Arbitration Center (“VIAC”) issued Arbitral Award No.75/17 HCM (“Arbitral Award 75”) concerning a dispute over a Non-Disclosure and Non-Compete Agreement (“NDA“) between Company X (plaintiff – employer) and Ms. Do Thi Mai T (defendant – employee).  According to Arbitral Award 75, the VIAC made a judgment in favor of Company X and compelled the employee to compensate Company X for her violation of the signed NDA.  The employee did not agree with Arbitral Award 75 of the VIAC and filed a lawsuit in the People’s Court of Ho Chi Minh City (“HCM Court”) requesting to overturn Arbitral Award 75 in its entirety claiming, amongst other arguments, that “the dispute was outside the jurisdiction of the Arbitration Tribunal”.  On June 12th, 2018, the HCM Court issued Decision No.755/2018/QD-PQTT (“Decision 755”) rejecting the employee’s request to negate Arbitral Award 75 (click HERE to see full contents of Decision 755).  The HCM Court’s decision raises several issues as to whether the VIAC (which is a body specializing in commercial dispute resolution) has jurisdiction to settle disputes over an NDA.  So the question is whether it is correct to conclude that the VIAC (or any commercial arbitration body) is a recognized entity that has jurisdiction to settle disputes regarding NDAs.

1Does the HCM Court actually recognize the jurisdiction of the VIAC in its Decision 755?

Pursuant to Article 2 of the 2010 Law on Commercial Arbitration, the commercial arbitration body has jurisdiction to settle the following types of disputes:

(1)Disputes arising from commercial activities;

(2)Disputes among parties, at least one of whom is involved with commercial activities; and

(3)Other disputes that are under the jurisdiction of the arbitration body as stipulated by law.

According to Arbitral Award 75 of the VIAC, the VIAC categorized the dispute over the NDA as falling within the second type of dispute mentioned above i.e. “disputes among parties, at least one of whom is involved with commercial activities”. The reason is that one of involved parties in the dispute, i.e. Company X, is a trader who has registered its business with the authorities and performs commercial activities. Thereby, the Arbitration Tribunal of the VIAC concluded by itself that it had jurisdiction to settle the dispute over the disputed NDA.

In her written request for overturning Arbitral Award 75, Ms. Do Thi Mai T argued that the dispute over the NDA was a labor issue which, by law, would remove it from the jurisdiction of the VIAC (in accordance with civil procedure law which states that jurisdiction over labor disputes belongs to the courts). However, during the arbitration proceedings, Ms. Do Thi Mai T did not raise any objections to the jurisdiction of the VIAC but proceeded to participate in the arbitration and the dispute resolution hearings. Therefore, Ms. Do Thi Mai T waived her right to protest against the jurisdiction of the VIAC in the HCM Court (Article 13 of the 2010 Law on Commercial Arbitration and Article 6 of Resolution No.01/2014/NQ-HDTP). This was the main reason why the HCM Court rejected her request for overturning Arbitral Award 75.

Nevertheless, careful reading of the details of Decision 755 neither confirms nor denies whether the VIAC was right in self-recognizing its jurisdiction based upon Article 2 of the 2010 Law on Commercial Arbitration. Further, Decision 755 does not directly recognize that the VIAC has subject matter jurisdiction over the aforesaid dispute under the law. Consequently, there are no grounds to assert that the HCM Court has recognized the jurisdiction of the VIAC over disputes concerning NDAs.

2Is a dispute regarding an NDA a labor dispute in nature?

The fact that the VIAC applied Article 2 of the 2010 Law on Commercial Arbitration (which is “disputes among parties, at least one of whom is involved with commercial activities”) to self-recognize its own jurisdiction over disputes concerning NDAs results in a question: Are disputes over NDAs defined as a labor dispute or a commercial-civil dispute? Needless to say, determining the correct type of legal relationship in a dispute is the ground for correctly determining the jurisdiction of the dispute resolution body.

Currently, there are some who argue that a dispute over an NDA is separate and independent from a dispute over an employment relationship because the NDA is signed separately and independently from a labor contract (i.e. the NDA is not signed as an annex or an integral part of a labor contract). However, our point of view is that a dispute over an NDA cannot be settled separately from the employment relationship. The creation of an employment relationship results in concerns regarding employees’ access to confidential information of the employer. Improper use of such confidential information by the employees (e.g. the employees disclose or use such confidential information to work for the employers’ competitors) is a real risk to employers as well as losing their competitive advantages in the market. Consequently, signing NDAs with employees is a necessity.

Deeper examination of the nature of NDAs reveals clearly that there is no NDA if there is no employment relationship. Thus, regardless of the NDA being signed separately (i.e. the NDA is not signed as an annex or an integral part of the labor contract), the relationship between the NDA and the employment relationship cannot be negated as analyzed above. The dependence of NDAs on the employment relationship is further proved by the fact that the employee signs the NDA without receiving any additional benefits as reasonable compensation for additional obligations arising from the NDA during and after his/her employment. Therefore, if the independence of the NDA cannot be proven, any dispute over NDAs will be classified as a labor dispute and, as a result, will be under the jurisdiction of the Court, not a commercial arbitration body. (Other issues associated with the enforceability of the NDA can be found in LeTran’s Insight HERE)

3Grounds utilized by the Court to cancel an arbitral award

Under Article 68.2 of the 2010 Law on Commercial Arbitration, one of the grounds used by a Court to cancel an arbitral award is that “the dispute is outside the jurisdiction of the Arbitration Tribunal”. Returning to Arbitral Award 75 of the VIAC, in our point of view, if the employee would have raised objections to the jurisdiction of the VIAC during the arbitration proceedings, and the Arbitration Tribunal of the VIAC did not accept such objections, there would have been a very high possibility that the HCM Court would cancel Arbitral Award 75 at the employee’s request. The prevalent reason is that Vietnamese laws and Vietnamese competent authorities always favor the protecting of employees’ benefits rather than rights of companies (which results from the government point of view that employees are the weaker party in an employment relationship).